Saving should not begin at 40

Aneth Ng-Lim

Posted at Jul 22 2019 11:20 AM

Senator Manny Pacquiao walked away with another fat paycheck after his boxing win yesterday. At the age of 40, he is one of the few people in the country that can claim to have enough wealth to last his lifetime, plus with many left over for his children, and their children too.

If you’re in your 40s or hitting this milestone soon, financial experts say you are reaching your earning peak. If you started saving in your 20s and 30s, then you are ready for some serious investing in your 40s. 

While a famous saying claims “Life begins at 40,” that’s certainly not true for saving. If you will only begin saving when you are 4 decades and older, you’ll have quite the catching up to do to ensure you can retire comfortably.

So let’s say you did know to set aside money as soon as you started working or making an income when you were younger. When you hit your 40s, it would mean you have a comfortable pot of cash to invest. Here are some steps you can take to build and preserve your wealth.

#1 Schedule financial check-ups.

Just as you need to see a doctor at least once a year for a medical check-up, your money needs to be checked over too. Are your investments sound? Are you losing money where you parked it? Do you have enough insurance to protect yourself and your family if something untoward happens?

Some banks offer free financial check-ups, hoping to reel you in later as a client. I would suggest sitting down with two to three different financial entities. If possible, meet with banks, securities firms, insurance advisers and also financial planners. You will discover different perspectives when it comes to investing, and hopefully come away with richer investment knowledge that can help boost your wealth.

If you’re thinking, I can handle my own money, or will just ask help from family and friends, think twice. The truly wealthy stay truly wealthy because they know to turn to professionals.

If you’re a football fan, you may know Nick Foles who led his team to their first Super Bowl win and was named the game’s Most Valuable Player. He just signed an $88 million contract and in an interview with Marketwatch.com shared the best financial advice he’s received.

“We’re blessed to receive money like you can’t imagine. The key is to find someone you trust, whose values align with yours. We found a perfect financial adviser … and I’ve been with them my whole career,” said Foles.

#2 Know your net worth.

Ideally, you have this number in mind before your financial check-up, but some people need help to determine this.

There is a simple formula to compute for your personal net worth. That’s Assets minus Liabilities equals Net Worth.

Assets are items you own free and clear, which you can sell and turn into cash should you need too. They include the cash you have, whether saved in the bank or money you lent to someone. It would also cover investments, real estate properties, cars, and other items of value from art to furniture. Even insurance policies are considered assets – just look at their present cash values.

Meanwhile, liabilities are debts including your credit card balance, money owed to family and friends, any personal loans, or car or home mortgage. All your financial obligations that need to be paid should be included here.

#3 Are you in the red or black? Whatever the color, you can still invest wisely.

In accounting terms, being in the red means you are losing while being in the black means you are making money.

If your assets are greater than your liabilities, that’s a black and shows you are doing well and will likely have more options when it comes to investing. But if your liabilities are greater than your assets, that means your balance sheet is in the red and you need to turn that around. 

But even with a red or negative net worth, you can still invest wisely. Pose this question in your financial check-ups and hear the answers of the financial professionals. The ones that make the most sense to you are hints which financial company you should choose.

#4 Discover your risk appetite.

Before you make any investment, you need to discover is your risk appetite. And again for a first-time investor, a financial professional can help you discover this.

For the possibility of greater rewards, some investments carry greater risks and you can stand to lose all or some of your money. The trick is to find the right balance that makes the most sense to you. There is no one size fits all here, and a good financial professional will take the time to understand your risk appetite and tailor her or his investment advice accordingly.

Don’t think that money in the bank is safe – even banks close down too, and while your savings are insured – the coverage is only up to a certain amount. Saving and investing involves many risks, from default risk to inflation risk to volatility risk to interest-rate risk.

To strike a good balance, you will need to know your risk appetite, that is your personal attitude to risk, plus your investment goals (time frame and need for returns) and finally your personal circumstances (how much can you afford to lose if the market goes down).

#5 Automate your saving and investing.

If all the risk scenarios scared you, don’t take that as an excuse to watch your investments 24x7. You may want to automate your finances by ensuring a portion of your income is moved to your investment or retirement accounts. Based on your risk appetite, you can also automate inflow into investments you pre-approved.

That way, you only need to review twice a year, or even quarterly if the markets are volatile. Do not let every market downturn spook you into pulling out of investments. Make informed decisions and consult financial professionals so you save on entry and exit fees, even penalties. Sometimes, you go sleep knowing you lost money today and then wake up next day to find it all recovered. Knee jerk reactions can cost you.

#6 Are you ready for “What If” scenarios?

Because we do not like to think they will happen to us, most people do not plan for emergencies. Did you know that many successful entrepreneurs lose their businesses because they failed to plan?

If you plan for “What If” scenarios for your personal and professional lives, you will not be vulnerable to losing your job or falling ill. You will have a money cushion that you and your family can fall back on in difficult times.

While it’s great to build your wealth, protecting it is equally important so ensure that you have a good size emergency savings as well as insurance policies that will provide for you and your family to enjoy the same quality of life in a “What If” scenario.

#7 It’s also about the company you keep.

This is not an advice to turn you into a money snob, but simply to be careful about the company you keep. If you want to commit to growing your wealth, but you are surrounded by people who like to live beyond your means, there is a greater chance that they will pull you rather than you will pull them.

Remember high school? If you like to study, your friends are mostly honor students. If you like sports, you hang out with varsity members. If you like music, you’re part of the artistic crowd. Adult life is not so different. Cultivate friendships with people who are successful with their money as their actions and advice can help you become one too.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.